Auditing: Threats to Auditor's Independence and Safeguards

The report aims to identify possible threats of auditor’s independence and to resolve the issues effectively. Threats of independence of the auditors in Maitland analyzed, discussed effectively. Most relevant issues of the company is discussed briefly. Fee dependence is the major issue, which gives rises to threats. Types of threats acknowledged in terms of auditor independence are discussed to analyze the scenario; self-interest threat is the major issue in this origin.

Running head: Auditing
Auditing
Name of the Student-
Name of the University-
Author’s note-

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Executive summary
The report aims to identify possible threats of auditor’s independence and to resolve the issues
effectively. Threats of independence of the auditors in Maitland analyzed, discussed effectively.
Most relevant issues of the company is discussed briefly. Fee dependence is the major issue,
which gives rises to threats. Types of threats acknowledged in terms of auditor independence are
discussed to analyze the scenario; self-interest threat is the major issue in this origin. The
possible threats, which are common to any company stated briefly. The safeguard tool is stated
to understand the conditions of threat; later which can be implemented effectively. Lastly,
relevant rules and regulations are discussed which is measured and implemented by the company
It can be concluded that auditors should undergo with all their responsibility effectively and they
must be given independence to carry out their task smoothly.

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Table of Contents
Introduction......................................................................................................................................3
Discussions......................................................................................................................................3
Issues............................................................................................................................................3
Types of threats, which rises auditor independence....................................................................4
Safeguards of auditor’s independence.........................................................................................5
Rules and regulations as per the issue of Auditor’s independence:.............................................6
Recommendation.............................................................................................................................6
Conclusion.......................................................................................................................................6
Reference list...................................................................................................................................8

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Introduction
PMB Securities LTD is a Roma based company, which manufactures high tech security
systems. They are an ASX listed company, which carries good reputation in the market. The
report focuses to identify potential threats to identify auditor’s independence while auditing in
PMB securities LTD for Maitland Partners. The type of threats applicable, which rises, in this
case for the auditors discussed effectively. Relevant safeguards are discussed, which enables the
auditors to avoid threats to acceptable level. Lastly, appropriate recommendation is provided in
terms of auditor’s independence is issued.
Discussions
PMB securities decided to install new a new off-the-shelf inventory system in their
organization as because the old system, which was in-house, where the old system could not,
being able to hold the pressure of complex and detailed manufacturing costing inputs which
incurs tender costing. The old system had other problems with broader report requirements. The
IT team of the company after reviewing with the consultants of the software team, decided to
install new manufacturing costing system. The operational team of the company effectively
engaged selection, training, testing and implementation stages of the product. In association to
estimate budget of the project, PMB securities approached Maitland Partners to estimate
valuation of the company.
Issues
There are possibilities of certain issues, which might hamper independence for the
Maitland Partners while performing auditing for PMB Securities LTD. Level of independence,
which Maitland might face is fee dependence. It is the process when fee dependence hampers
auditor’s independency, then according to different studies, auditors do not likely qualify

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accounts of the target company. In this case, auditors of the Maitland Partners might face fee
dependency, which will represent a major threat to independence (SEC.gov, 2019). Bruce Tegan,
an ex-review partner in 2016 Maitland Partners auditing sector where he checked PMB
Security’s report, later he did not had any such contacts with other employees after he took up
the role of CFO in PMB Securities Ltd. This is the possible reason, which might affect the
auditors of Maitland securities for their independence while performing auditing (Aschauer &
Quick, 2018). The internal communication between the two companies is proactive and thus it
will hamper the interest of the auditors to performing for the company.
Types of threats, which rises auditor independence
Auditors are expected to provide full independence and having complete professional
opinion on the task, they are performing (de Vries, 2018). When auditors lack independence in
their work, it becomes complete useless for them to performing the report on which they are
working. Auditors of Maitland Partners have possible threats considering independence respect
to them.
i. Self-interest threat- When auditors of this company do not receive fees but hold high interest in
the company called self-interest threat. It is possible in this case, that PMB securities will not pay
its auditing fees due to diligence of the company (Aguilera, Judge & Terjesen, 2018).
ii. Self-review threat- It happens when auditors is auditing a task, which is performing by others
in the same firm. It demoralizes the auditors who expect to perform the task on his own (Taslima
& Fengju, 2019). It is possible that Auditors of Maitland partners will face this problem because
the CFO of this organization has internal connections within both the companies, which might
affect the independence of auditors.

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iii. Advocacy threat- The auditor of Maitland Company is involved in helping the client to the
destination in which their objective is likely to compromise. It is the case, where auditors assist
in selling out the company as well performing auditing of the Company (Staszkiewicz & Górska,
2018). The possible issue is, they prepare a favorable report to increase the sale price of PMB
Securities.
iv. Familiarity threat- According to (Gunaratna, 2018), if the auditors are too much familiar with
the employees, officers and directors of the company then it is possible that clients might request
and pressurize the auditors to manipulate data of financial reports in favor of them. In case of
auditors of Maitland Partners; Bruce Tegan, the CFO of PMB Securities was once an employee
of Maitland and he is familiar with current employees of the company. He might maximize his
power by convincing the auditors to manipulate data of PMB Securities Ltd.
Safeguards of auditor’s independence
i. Auditor’s independence strength is required, which defines educational, training and
experience requirements before entering in the profession.
ii. Professional development and grooming of trainee auditors needs to be continued by the
organization (Thomson et al, 2018).
iii. Regulations of corporate governance are mandatory to maintain by the companies.
iv. Maintaining discipline and monitoring of the auditors upon how much they are abiding
regulations of the system are tested.
v. Disposal of interest in safeguard shall maintain effectively by organization.

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vi. Different teams are required to implement for the non-assurance works, which will be much
easier to maintain balance within the company.
vii. Employees who are not team members shall be prohibited by the organization.
Rules and regulations as per the issue of Auditor’s independence:
Rules which has been maintained throughout is focused on the independence of the
auditors who have financial interest of the company in the business which they area auditing.
Independence requires integrity, honesty and shall have an objective approach in the auditing
process. It is the rule as per APES 110 that auditors shall be left free to carry out his work in an
objective manner.
The charter of Audit defines independence where interest might be harmed by the results of an
audit. Hence, the law enables the auditors to encourage independence to the auditors, which
enables code of ethics of the company gives guidance and reference to the suppliers, clients and
third parties.
Recommendation
It can be recommended that auditors shall be well equipped with required knowledge and
structural framework in respect of performing auditing for different companies. It is applicable
for every organization that auditors shall allow to perform auditing freely to carry out his task.
Conclusion
It can be concluded from the above topic that auditors shall be given independence to
perform their task freely. The parties, which are interested with financials, are likely to create

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problematic situations for the auditors to pause their task. Potential threats to the auditors have
discussed to resolve the issues, which will generate positivity among them and will let the task to
finish off with good vibes. Types of threats are analyzed and desired to be eliminated by
organizations. Safeguards of the threats analyzed properly to take down all the negative impacts
of the scenario.

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Reference list
Aguilera, R. V., Judge, W. Q., & Terjesen, S. A. (2018). Corporate governance
deviance. Academy of Management Review, 43(1), 87-109.
Aschauer, E., & Quick, R. (2018). Mandatory audit firm rotation and prohibition of audit firm‐
provided tax services: Evidence from investment consultants’ perceptions. International
Journal of Auditing, 22(2), 131-149.
de Vries, R. (2018). Programme of requirements for the design of an instrument that assists
spatial planners in assessing flood risk: A research towards the questions if-and how-an
instrument that presents information to users form a different dsicipline that the designers
can be improved.
Gunaratna, R. (2018). Global Threat Forecast. Counter Terrorist Trends and Analyses, 10(1), 1-
6.
SEC.gov | Guidance for Auditor Independence. 2019. Sec.gov. Retrieved 1 August 2019, from
sec.gov-independence-guidance
Staszkiewicz, P., & Górska, R. (2018). The non-audit fee and the auditee’s failure risk. Zeszyty
Teoretyczne Rachunkowości, (99 (155)), 97-117.
Taslima, A., & Fengju, X. (2019). Stakeholders’ Trust towards the Role of Auditors: A Synopsis
of Audit Expectation Gap. Journal of Management, 6(1), 43-49.
Thomson, R., Yuki, M., Talhelm, T., Schug, J., Kito, M., Ayanian, A. H., ... & Ferreira, C. M.
(2018). Relational mobility predicts social behaviors in 39 countries and is tied to

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historical farming and threat. Proceedings of the National Academy of Sciences, 115(29),
7521-7526.